Restaurants: Pricing and Characteristics

Most economists learn to calculate the proper price of a good by looking at the intersection of supply and demand curves. This is a dangerous practice that leads to dramatic inefficiencies and lost income.

Pricing isn't something that should be left until the end of the product development process. A price tag is not something that can be slapped on after the fact.

Proper prices must follow from a host of decisions that were made at the very earliest stages of the product development cycle.

As seen in the graph below, expectations and norms change at different price levels.

Characteristics of restaurants at different price levels - not to scale

Characteristics that might be demanded at one level would be considered completely undesirable at another. Can you imagine being told to fill your own glass with your beverage at an expensive restaurant? Would you expect to make small talk with staff at a fast food shop?

When thinking about monetization, remember to use Chicago-style thinking: think about pricing early and think about it often!